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Capital Substitutability and Weak Sustainability Revisited: The Conditions for Capital Substitution in the Presence of Risk

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  • Frank Figge

Abstract

The capital approach is frequently used to model sustainability. A development is deemed to be sustainable when capital is not reduced. There are different definitions of sustainability, based on whether or not they allow that different forms of capital may be substituted for each other. A development that allows for the substitution of different forms of capital is called weakly sustainable. This article shows that in a risky world and a risk-averse society even under the assumptions of weak sustainability the circumstances under which different forms of capital may be substituted are limited. This is due to the risk-reducing effect of diversification. Using Modern Portfolio Theory this article shows under which conditions substitution of different forms of capital increases risk for future generations.

Suggested Citation

  • Frank Figge, 2005. "Capital Substitutability and Weak Sustainability Revisited: The Conditions for Capital Substitution in the Presence of Risk," Environmental Values, White Horse Press, vol. 14(2), pages 185-201, May.
  • Handle: RePEc:env:journl:ev13:ev1409
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    More about this item

    Keywords

    Weak and strong sustainability; risk; substitutability; capital approach;

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • Q01 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Sustainable Development

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